How Does Merchant Banking Differ from Regular Banking?

Banking is generally associated with money, but the first banks of the world came into origin before the concept of monetary transactions. These ancient banks used different items, from grains to gold, as deposits. While exploring the history of banks, you will find the mention of merchant banks as the original banking institutes. Today, commercial banks, investment banks and other types of banks exist along with merchant banks.



Merchant banking services differs from other types of banks in the terms of the roles they play. In some countries, including the USA, merchant banks and investment banks have similar types of roles. One of the most important roles played by merchant banks is to help in building capital. Individuals, companies as well as government bodies can raise capital with the help of these banks.



The term ‘merchant bank’ originates from the fact that these institutes were established to assist in the production and trading of different types of commodities. Today, the scope of services offered by these banks has been extended. Consultation services are offered by the modern day merchant banks to the business houses on various issues. Mergers and acquisitions among the companies, for example, take place on the advice of the merchant banking experts.



The companies who wish to go public find it beneficial to take assistance from merchant banks. Likewise, the business houses that wish to take their businesses to the international level too act upon the advice of these banks. Portfolio management includes another useful set of services that merchant banks offer to the companies. From project counseling to pre-investment studies, a number of services are included under this category. Credit syndication, issue management, business insurance and many other important business issues can be dealt with the merchant banking assistance.



Apart from merchant banking services, the regular form of banking is associated with commercial banks and investment banks. However, these banks may also perform the functions of a merchant bank. Money depositing and lending are the two important functions of a commercial bank. These banks work as lending institutes by offering money in the form of installment loans. Bank drafts and cheques too are issued by these banks.



Some of the other popular functions that a commercial bank performs include cash management, safe deposit boxes, treasury and issuing of guarantees and letters of credit. Payment processing is another common function of these banks. Investment banking involves corporate financing and sales and trading as some of its main functions. These banks also help the companies to carry out research about the buying and selling trends existing in the market.



One common aspect of merchant banking and regular banking is that the services offered by each one of them can be accessed online. This has added convenience to the banking experiences of individuals, companies and other types of bank customers.